Slowdown in Bitcoin ETF Inflows Is Short-term Pause: Bernstein Report

The recent surge in Bitcoin Exchange-Traded Funds (ETFs) appears to be taking a breather, but analysts at Bernstein aren’t hitting the panic button. They view the slowdown as a temporary lull before the leading cryptocurrency resumes its upward climb towards their ambitious $150,000 target by the end of 2025.

“Bitcoin ETF flows have slowed down, with the ‘halving’ catalyst and successful ETF launch, pulling forward BTC returns year-to-date (up 46%),” said Gautam Chhugani and Mahika Sapra, analysts at Bernstein, in a recent note to clients. They downplay the slowdown, attributing it to profit-taking after a strong first quarter and the need for further integration of these new investment vehicles into traditional financial platforms.

While the initial launch of spot Bitcoin ETFs generated significant excitement, widespread adoption requires further infrastructure development. Inflows peaked at a net daily figure of $1.05 billion on March 12th, coinciding with Bitcoin’s near all-time high of $73,836. Since then, inflows have slowed considerably, highlighting the need for platforms to establish robust compliance frameworks for selling these novel products.

Despite the pause in ETF inflows, Bernstein maintains its optimistic outlook for Bitcoin. The analysts cite several factors supporting their $150,000 price target, including the substantial $12 billion of net inflows into spot Bitcoin ETFs so far this year. Additionally, the recent Bitcoin halving event has placed leading miners in a financially healthy position, with transaction fees stabilizing around a healthy 10% of their revenue.

SEC’s Decision on Ethereum ETFs

The future of Ethereum ETFs remains uncertain. The U.S. Securities and Exchange Commission (SEC) has a May 23rd deadline to decide on their approval. Bernstein anticipates a potential denial based on concerns regarding the reliability of the correlation between Ethereum’s spot and futures markets. However, the analysts believe such a decision would likely be challenged in court, similar to the successful legal battle surrounding the Grayscale Bitcoin ETF.

An alternative scenario involves the SEC classifying Ethereum as a security, creating a regulatory conflict with the Commodity Futures Trading Commission (CFTC) which currently views it as a commodity. This situation would further complicate the approval process for Ethereum Exchange-Traded Funds.

Interestingly, Bernstein views a potential SEC denial as a potential positive for Ethereum’s price. They argue that litigation would bring renewed focus to the cryptocurrency, potentially leading to a period of outperformance relative to Bitcoin. This scenario could also benefit “ETH-beta” Layer 2 tokens like Arbitrum, Optimism, and Polygon.

In conclusion, Bernstein’s analysis suggests a temporary pause in Bitcoin’s ETF-fueled rally. However, the underlying fundamentals remain strong, supporting their long-term bullish outlook. The fate of Ethereum ETFs adds another layer of intrigue to the crypto market narrative, with a potential SEC denial possibly triggering a shift in investor focus towards Ethereum and its associated ecosystem.

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